Cashing in on the London office space race

The UK is looking to build new alliances beyond Europe after Brexit, and Asian investors appear bullish about our prospects outside the EU as evidenced by COS Capital’s plans to invest £900m from their London office.

This is particularly true of institutions and property developers from China, who believe that Brexit represents a good opportunity to invest in UK real estate over the next five years.  

Despite the uncertain outlook for the UK economy as negotiations to leave the EU proceed, the Chinese prefer to focus on long-term fundamentals, and in my conversations and meetings with Chinese investors, they have indicated to me that they are still bullish about growth prospects for UK commercial property.

The decline in sterling since the EU referendum is a significant factor. The 14% fall in the pound against the dollar to its lowest level in more than three decades has certainly created additional value for overseas investors.

At the same time, the depreciation of the Chinese yuan and a relatively sluggish economy at home has encouraged a movement of Chinese capital into global real estate, with Beijing’s blessing.  Conversely, there has been a cooling towards Chinese investment in other parts of Europe, notably in Germany.

Chinese attraction

Why are Chinese investors attracted to the UK? A significant factor is the return on investment on rental properties. In Greater London, for example, ROI averaged between 15.7% and 18.9% in the six years to 2016. Low borrowing rates are also attractive. After seven years at 0.5%, the benchmark interest rate is now at an historic low of 0.25%.

And although we in Britain may feel unsettled by the prospect of change following Brexit, Chinese investors are unfazed. They see a stable economy, with London continuing to be a major global financial centre. There is also a perceived high level of security compared with many other countries, even within Europe.

Earlier this year Office Space in Town secured backing from Kailong, one of China’s leading real estate asset managers, for our two London serviced office joint ventures, which have a combined value of £160m.

The UK serviced office market has grown 30% since 2008, with London at the forefront of its expansion.  The current value of the market is £19bn, and is set to grow to £62bn by 2025.

OSiT is now backed by two major global property investors, Kailong from China and Forum Partners from the United States, which gives us the confidence to seek further quality assets to take advantage of the anticipated growth in the UK market for services offices, in London and in regional cities like Manchester and Bristol.

The potential of Chinese, and Asian, investors to transform the UK commercial property market is colossal. Many believe that China is only at the beginning of its international investment journey. 

With a population of 1.4 billion, which is becoming increasingly affluent, a new wave of international investment is underway, with a strong focus on real estate. The Chinese are committing ever-larger amounts of capital to property, especially in established markets, and the UK is exceptionally well-placed to benefit.

Giles Fuchs, CEO of OSiT